time value of money

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Time Value of Money
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Time Value Calculations using Tables
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Байду номын сангаас
Benefits of the knowledge of the time value of money
For investment analysis – To decide the financial
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Importance of Time Factor
Why is TIME such an important element in your decision?
TIME allows one the opportunity to postpone consumption and earn INTEREST.
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Useful References
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Thank you
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Calculations based on the time value of money
Present Value (PV) of an amount that will be
received in the future. Future Value (FV) of an amount invested (such as in a deposit account) now at a given rate of interest. Present Value of an Annuity (PVA) Future Value of an Annuity (FVA)
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Introduction
Definition: time value of money is the premise that an investor prefers to receive a payment of a fixed amount of money today, rather than an equal amount in the future, all else being equal.
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Notations
PV (Present Value) is the value at time = 0
FV (Future Value) is the value at time = n ‘r’ is the rate at which the amount will be compounded
Source: http://en.wikipedia.org/wiki/Time_value_of_money
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Time Value of Money
Which would you rather have -- $1,000 today or $1,000 in 5
years? Money received sooner rather than later allows one to use the funds for investment or consumption purposes. All other factors being equal, it is better to have $1,000 today. Simply put this is the concept of the time value of money.
each period
‘n’ is the number of periods
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Notations
PV(A) the value of the annuity at time = 0
FV(A) the value of the annuity at time = n ‘A’ the value of the individual payments in each
Rohit mishra
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Look ahead

Definition of Time Value of Money Why time is important ? Notations Formulas Example Calculation Calculation using Tables Benefits of the Knowledge of Time Value of Money
benefits of projects To compare investment alternatives To analyze how time impacts business activities such as loans, mortgages, leases, savings, and annuities.
Consider 2 situations Option A: You receive Rs. 10,000 today. Option B: You receive Rs. 10,000 in 3 years time
Assume no inflation
Assume interest rate 10% (Compound Interest)
compounding period
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Formulas
Present value of a future sum / Future value of
a present sum
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Formulas
Present value of an annuity
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Time value of money
the present time.
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Future Value Calculation
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Present Value Calculation
Similarly using the equation as
the present value of Rs. 10,000 received in 3 years when the interest rate is 10% can be calculated as Rs. 7513.1
Assume no change in any other financial situation
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Future Value Calculation
Consider Option A
Let’s calculate the future value of Rs. 10,000 received at